{"id":3506,"date":"2020-06-15T08:00:39","date_gmt":"2020-06-15T06:00:39","guid":{"rendered":"http:\/\/contattoblogs.timslatter.co.za\/?p=3506"},"modified":"2020-06-15T08:00:39","modified_gmt":"2020-06-15T06:00:39","slug":"how-to-emotionally-distance-when-investing-in-tough-times","status":"publish","type":"post","link":"https:\/\/zcp.co.za\/main\/how-to-emotionally-distance-when-investing-in-tough-times\/","title":{"rendered":"How to emotionally distance when investing in tough times"},"content":{"rendered":"<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Current investors have seen more \u2018interesting times\u2019, more black swans and market freefalls, than any other generation gone before.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">From the 2008 global financial crisis, followed by the longest bull run in history, to Brexit, several downgrades for South Africa and then the COVID-19 pandemic, today\u2019s investors have run the gamut. Their emotions have run the gamut too, whether they realise it or not.<\/span><\/p>\n<p style=\"text-align: justify;\"><b>Our brains on investing<\/b><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Like being chased by a lion or falling in love, our management of money produces very specific chemical reactions in the brain that are as primal as they are underappreciated. Take a look at how<\/span><a href=\"https:\/\/www.cnbc.com\/2020\/04\/15\/op-ed-coronavirus-market-swings-can-lead-to-an-amygdala-hijack.html\"> <span style=\"font-weight: 400;\">CNBC<\/span><\/a><span style=\"font-weight: 400;\"> describes it:<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">\u201cIn his book, \u201cYour Money &amp; Your Brain,\u201d journalist Jason Zweig explains that financial losses are processed in the same part of the brain that responds to mortal danger. As investors see their investment portfolios plunge, our amygdala kicks into high gear. The amygdala plays a crucial role in processing and steering our emotions, such as fear and anger, allowing us to respond quickly to dangerous situations. The ongoing communication between the amygdala and rational input given by the prefrontal cortex can be stunted in times of emotional threat, such as a financial loss. This communication disruption is also known as the amygdala hijack, and, essentially, the prefrontal cortex is disabled, preventing us from making sound, rational decisions.\u201d<\/span><\/p>\n<p style=\"text-align: justify;\"><b>First, become aware of the problem<\/b><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">What\u2019s interesting about investment is that, unlike a lion attack or falling in love, almost everyone thinks that they\u2019re <\/span><i><span style=\"font-weight: 400;\">not <\/span><\/i><span style=\"font-weight: 400;\">being emotional. Not understanding the basic \u2018trading psychology\u2019 as it\u2019s known behind the amygdala hijack lends it power.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">We all know the age-old adage of \u2018buy low and sell high.\u2019 Never is that more applicable than in market carnage such as that caused by COVID-19 and the 2008 financial crisis. To sell during a bad time, could be to take the biggest loss and miss the biggest opportunity in modern investment history. And we know this, logically, we do. So why do so many people sell anyway?<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Because to sell is, for the amygdala, to escape the \u2018lion\u2019. It just wants to get out \u2013 it doesn\u2019t care that such an emotional move could cost us our retirement.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">But if one is aware of the problem, of the trading psychology behind our amygdala screaming at us to sell, it becomes a little easier to emotionally distance ourselves from the decisions.<\/span><\/p>\n<p style=\"text-align: justify;\"><b>Emotionally distance<\/b><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">One of the challenges that we all face is overcoming the powerful impulses to escape the lion.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">We need to remind ourselves firmly that our emotional urges are not us.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">And they are not sacrosanct, we can choose to obey them or ignore them.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Language helps a lot. Instead of thinking \u2018I am freaking out\u2019, think rather \u2018my brain is freaking out.\u2019 An investor who knows trading psychology thinks: \u2018my brain is short-circuiting because of what it perceives as a dire situation\u2019. An investor doesn\u2019t think: \u2018I need to get out.\u2019<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Also, look for inspiration. Keep a quote by Warren Buffett next to your desk when you do your day-trading, or whatever it might be. Thinking with the wisdom of others, even if it is by proxy, distances yourself from the tunnel vision which is so easy in a moment of panic, which tricks us into thinking that the way a problem appears to us is the only way to look at it. For example, to look at COVID-19 or Brexit stock market crashes as a disaster rather than an opportunity.<\/span><\/p>\n<p style=\"text-align: justify;\"><b>Don\u2019t aim for being a robot<\/b><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">The aim here is not to suppress all emotions until you have none as an investor. Completely emotionless investing, as most experts will tell you, is a myth. Feel the fear, but don\u2019t let it master you. Emotions are important, but we need to be able to deal with them in a positive manner.<\/span><\/p>\n<p style=\"text-align: justify;\"><b>Get help<\/b><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Good, solid financial advice is invaluable \u2013 especially in tough times when emotional reactions are likely<\/span><b>. <\/b><span style=\"font-weight: 400;\">Seek out a financial advisor who understands volatility and let their experiences work for you.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Ensuring that you don\u2019t make any investment decisions or portfolio changes without your adviser\u2019s input is also a handy way to not act in the spur of the moment. You may wake up at four in the morning worrying about your retirement, convinced that you need to dump all your equities <\/span><i><span style=\"font-weight: 400;\">immediately, <\/span><\/i><span style=\"font-weight: 400;\">but in the cold light of day such kneejerk reactions might look very, very different.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Ultimately, it\u2019s you and not your emotions that are in charge when it comes to managing your money. Keep that in mind and you&#8217;ll be able to weather the storm ahead.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Current investors have seen more \u2018interesting times\u2019, more black swans and market freefalls, than any other generation gone before. From the 2008 global financial crisis, followed by the longest bull run in history, to Brexit, several downgrades for South Africa and then the COVID-19 pandemic, today\u2019s investors have run the gamut. Their emotions have run [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":3507,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,28],"tags":[],"class_list":{"0":"post-3506","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","6":"hentry","7":"category-blog","8":"category-market","10":"post-with-thumbnail","11":"post-with-thumbnail-large"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>How to emotionally distance when investing in tough times - ZC PRETORIUS<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/zcp.co.za\/main\/how-to-emotionally-distance-when-investing-in-tough-times\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How to emotionally distance when investing in tough times - ZC PRETORIUS\" \/>\n<meta property=\"og:description\" content=\"Current investors have seen more \u2018interesting times\u2019, more black swans and market freefalls, than any other generation gone before. 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